Not Getting My Vote To Spend $400 Million On The Most Expensive Gas In Southcentral History

Published: March 27, 2012

Dear Neighbors-

This week we started debating a gasline option that should be our last option of desperation, not our first option of choice. It’s a gasline that at least one executive of a company exploring in Cook Inlet testified will chill today’s option – Cook Inlet gas exploration, which is active, and which we should not stifle.

I want to get cheap, job-producing natural gas to Alaskans. But not all gasline proposals are the same, and we have better options before we jump off a cliff grasping the most expensive one; and spending $400 million of your money, if not billions, as House Bill 9 proposes. Last night I was outnumbered in proposing amendments, but supported by every member of the public who called in. Alaskans know a bad deal when they see one. Republicans and Democrats alike testified against the bill. And I, as a Democrat, agree with republican Bill Walker, and former Governor Wally Hickel, that we have smarter options – options that this one could jeopardize.

Oh – and this small-diameter, low-delivery line will cost $7 billion to build – and maybe $9 billion – much of which will likely have to be subsidized with state money. To get affordable gas out of that line, the state will likely have to finance billions of that cost. That’s money we can save for the future if we give the better natural gas options we have a chance, and not kill them by moving ahead with this option – which is a car that drives like a 1980 Yugo, at the cost of a 2012 Lear Jet.

How’s this for poor policy. The nicely named “bullet line” proposal in House Bill 9 would: 1) spend $400 million in public funds before any pipe is laid; 2) produce gas in such inefficiently small quantities that it will raise Southcentral natural gas prices by 25 – 100% - depending on whose cost estimates you believe; and, 3) bind you to that high priced gas for 20- 30 years, even if a big pipeline gets built. That’s because of something most Alaskans don’t know. In the pipeline industry no one builds a pipe without a 20 – 30 year long-term binding commitment to buy the line’s gas.

A big pipeline would produce in-state gas at half to a third the price just because of simple economies of scale. It’s the difference between transporting quarry by train, or carrying six rocks at a time in a Volkswagen. If we move ahead with HB 9 today it will also possibly kill needed natural exploration in Cook Inlet – as companies aren’t going to invest millions to find gas that they know will be displaced by a heavily subsidized bullet line.

Our best options for natural gas: By the best accounts, and testimony yesterday from Cook Inlet gas explorers as well as a recent study by the United States Geological Survey, we have enough natural gas in Cook Inlet to hold us over for over a decade, and likely over two decades – letting markets change so that we can grab the big prize – a big gasline that delivers gas cheaply in-state and exports large volumes of gas needed so this state can replace some of the revenue we’ve lost from falling oil production since Prudhoe Bay’s peak days.

A big line (defined as carrying 3 billion cubic feet of gas a day - - or 6 to 12 times more than the HB 9 small “bullet” line) would:

- Produce gas that is cheaper than what Alaskans pay today (delivered to consumers at about $6 an mcf as opposed to $12 - $17 an mcf under the House Bill 9 “bullet line” – or more as the study on that line concedes its numbers may be 30% off).

- Bring thousands of jobs

- Produce gas at low enough prices that it could attract business to Alaska, including value added plastics businesses

- Result in oil finds we need to fill the oil pipeline (as you produce gas in mixed gas and oil fields, that makes formerly uneconomic oil fields economic to produce).

Today the Governor is doing what he is required to under the AGIA law we passed in2007. He is negotiating with the big 3 oil companies to sell the vast reserves of gas they hold in their already-explored North Slope oil fields. Right now the best option for a big line seems to be a route that drops gas along the route for in-state needs and use, and then sends the bulk of additional gas to Pacific Rim markets.

I applaud the Governor for keeping at this, as it is our future, and if this plan doesn’t work today, it will work as the world economy rebounds, and gas prices and demand make it work. If the Asian plan doesn’t work, forecasts are that Lower 48 gas prices are likely to start rebounding in the next few years so that a line to the Lower 48 works. Both options will bring Alaskans cheaper gas, produce thousands of needed jobs, lead to more oil discoveries, and protect this economy for generations.

Birddogging this project is the Governor’s job, and we should pull together as Alaskans to make sure this and future governors work on this as a priority.

But as long as Cook Inlet gas proves able to tide us over until completion of a big line, as all the evidence suggests it will, we don’t need to jump off the cliff while handing away $400 million in seed money to essentially ship expensive gas inside a Volkswagen.

What About Fairbanks and Rural Alaska

These regions get the short shaft on Alaska’s gas resources. But Fairbanks legislators are smartly pushing two projects to lower their high cost of energy – trucking gas from the North Slope (at a cost of roughly $11 - $16/mcf, or roughly half what they pay now). We could tide them over with a small subsidy to help that project work. And if projections are right, they could build a much cheaper pipeline from Cook Inlet to Fairbanks, and legislation has been filed to study that option. All of these projects would be aimed at tiding us over so we have a chance to make a big line work. Rural Alaska has a right to gas too. We have done studies showing that barging propane would work in a few communities, to help them off the high price of diesel. And a big line would get them cheap gas products. For now, we should also help rural Alaskans upgrade the efficiency of their diesel plants, and continue to expand the scope of our renewable energy policy and home energy efficiency upgrade policies - something that will benefit rural Alaskans greatly.

That’s All Folks……

If Democrats, a Republican Governor, and a former Republican Gubernatorial candidate can agree on this, it might just be right. But right now, in a republican dominated House, all I can do is get the message out, and try to change minds. So far we’re losing votes along caucus lines. But we have allies in the Senate who agree with us. And we wish Godspeed to the Governor as he keeps negotiating under the law we passed in 2007 for a gasline that will truly serve our future.